Canada-US Differences

An FPU class member requested a summary of main differences between Canada and the US as covered in FPU. I thought this was a great idea, so I am sending it to everyone who is taking or has taken the class. 

All of the underlying financial principles are the same, but there are some differences in applying these principles. I'm not an expert in any of these areas, so please correct me if anything I've mentioned is not accurate. 

Dumping Debt

- Visa and Mastercard debit cards are not offered by every Canadian bank. 1st Choice Savings Credit Union is the only bank in Cardston that offers one (Global Payment Mastercard)

Credit Bureaus

- It's not quite as easy to get a free annual credit report from credit bureaus in Canada, but it is possible by following instructions on the credit bureau websites (www.Transunion.ca and www.Experian.ca)

- Unlike the federal Fair Debt Collections Practices Act in the US, debt collection practices are governed by each province in Canada. Information about Alberta can be found here: http://www.servicealberta.ca/Consumer_Info.cfm

Retirement Planning

- IRA, SEPP, 401(k), 403(b), 457 (US) = RRSP (much simpler in Canada!)

- No penalty for withdrawing from an RRSP (10% penalty on most US plans) unless the underlying investment has a withdrawal penalty (such as a GIC), but withdrawal is taxed as income

- One spouse can contribute to the others RRSP and still get the tax break (spousal RRSP)

- Roth IRA, Roth 401(k) (US) = Tax-free Savings Account (TFSA) (Canada)

College Savings

- ESA, UTMA, 529 (US) = RESP (Canada) 

- Unlike ESA's, RESP's are not tax free, but the government does match 20% of contributions up to $2500 per year (contribute $2500, get $500 for free)

Real Estate and Mortgages

- Mortgage interest is not tax deductible in Canada

- No limit on tax-free gain on sale of primary residence in Canada

- Mortgage insurance in US is normally paid monthly and can be dropped when equity is more than 20%. Mortgage insurance in Canada (CMHC) is normally paid in full up front, either in cash or added to mortgage principal. 

- We don't have the different types of mortgages - FNMA, HUD, VA

- Mortgage amortization periods and other options are far different in Canada, but there are too many options to list here. The biggest difference is that the common 30-year, fixed-rate, no prepayment penalty mortgage is not available in Canada.